China underpins Asia Nov manufacturing recovery; virus worries remain

Author: Nurluqman Suratman


SINGAPORE (ICIS)--Asia's manufacturing recovery continued in November led by a strong performance in China, but business confidence is sputtering across the region as more restrictions are imposed in key external markets amid the unabated spike in coronavirus infections.

China's November official purchasing managers' index (PMI) at 52.1 was at its highest since September and marked the ninth consecutive month of expansion of its manufacturing sector.

The sub-index for production rose to 54.7 in November from 53.9 in October while that for new export orders grew to 51.5 from 51.0 in the previous month.

A PMI reading above 50 indicates an expansion in the manufacturing economy, while a reading below that denotes contraction.

"There is no letting up in China’s economic recovery momentum in the fourth quarter, supported by strong seasonal demand with higher spendings expected in lieu of holiday travel," Ho Woei Chen, economist at Singapore's UOB Global Economics & Markets Research, said in a note.

The rebound in China's non-manufacturing PMI has also been swift since March with the reading also recording its ninth consecutive month of expansion even though some industries in retail have remained weak as foreign visitors stayed away.

China's official non-manufacturing PMI rose to 56.4 in November, up 0.2 point from October, its highest reading since June 2012.

Meanwhile, a private survey by Chinese media firm Caixin indicated the strongest improvement in China’s factory operating conditions in a decade in November, as growth of both output and new orders accelerated to 10-year highs.

Caixin's November manufacturing PMI for China rose to 54.9 from October’s 53.6.

"As production overseas was subdued by uncertainties brought by the pandemic, Chinese enterprises saw an increase in export orders,” said Wang Zhe, senior analyst at Caixin Insight Group.

“But the improvement in overseas orders was slightly weaker than that of domestic demand."

"We expect the economic recovery in the post-epidemic era to continue for several months," Zhe said.

China’s domestic recovery has been largely on track since the "V-shaped" rebound in its economy in the second quarter, thanks to its successful containment of the coronavirus, the gradual relaxation of social distancing requirements, and exceptionally strong exports, Japan's Nomura Global Markets Research said.

China, which is the world’s second largest economy, is Asia's primary petrochemicals market and a key driver in regional trade.

In Japan, manufacturing conditions slightly improved but remained in contractionary mode. au Jibun Bank’s November manufacturing PMI for Japan inched up to 49 - the highest reading since August 2019 - from 48.7 in the previous month.

Both its output and new orders have been declining for nearly two years, highlighting continued economic weakness amid the coronavirus pandemic.

"Furthermore, infection rates have surged in both domestic and international markets which resulted in a renewed fall in export orders, which dampened confidence further," au Jibun Bank said.

South Korea, Taiwan, Indonesia and Thailand posted better manufacturing PMI readings in November - a sign the pick-up in Chinese demand was underpinning the region’s recovery.

South Korea’s PMI rose to 52.9, marking the highest reading of the index since February 2011, based on a survey by financial services information provider IHS Markit.

"[PMI survey] panellists often commented that domestic demand conditions improved as the economy continued to stabilise, while new products entering mass production also boosted new sales," IHS Markit said.

Export orders within Asia, including those from China and Japan, improved further last month.

But the overall regional picture is not too bright, with manufacturing conditions out of Singapore, Vietnam and India indicating some deterioration in November, based on IHS Markit’s surveys.

Singapore's November PMI slipped to 46.7 from 48.6 in the previous month, while Vietnam manufacturing dipped back into contraction territory - with a 49.9 PMI reading - after three straight months of expansion.

India, which is a giant emerging market and Asia’s third-biggest economy, garnered a lower manufacturing PMI reading in November but, at 56.3, the figure was well above the threshold of expansion, according to IHS Markit.

"New export orders increased markedly in November, with survey participants reporting strong demand for their goods from key export markets, " it said.

"The loosening of Covid-19 [coronavirus disease 2019] restrictions, combined with an improvement in market conditions and a pick-up in demand supported another increase in production."

As of 2 December, global coronavirus cases stood at more than 63m, with the death toll at about 1.48m, according to the World Health Organization (WHO).

Focus article by Nurluqman Suratman

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